Greece and its international creditors have moved closer to a deal which would allow the cash-strapped country to avoid a default and stay in the euro currency club, officials said.

Greece has agreed to cut pensions to a level close to what creditors have demanded before they release new loans, officials said. The move comes days after Greece agreed to 8 billion euros (£5.7 billion) in austerity cuts and new taxes over two years.

After the first Greek proposal, Germany and other creditors, particularly the International Monetary Fund, were concerned Athens would rely too much on business taxes that could hurt growth. They insisted Greece had to do more.

The latest proposals brought PM Alexis Tsipras and the European institutions much closer together, enough for some to anticipate that an emergency meeting of the eurozone's 19 finance ministers tomorrow could bring a decisive breakthrough.

"Tomorrow's meeting is of decisive character," German chancellor Angela Merkel said after meeting Mr Tsipras and French president Francois Hollande.

Under the latest proposal, Athens said it will cut the contribution from the Greek state to pensions by between 0.25% and 0.5% of GDP this year and by 1% next year.

An official from one of the creditor institutions said that if you assess both sides "the difference now is very, very small".

Megan Greene, chief economist at Manulife Asset Management, said: "The gap between Greece and its creditors looks much smaller now that Greece has caved on some of its proposed pension reforms."

Mr Tsipras earlier met Ms Merkel and Mr Hollande on the sidelines of a European summit in Brussels as talks on unfreezing the country's bailout loans were at an impasse.

Greece could be in arrears of payment to the IMF as soon as Tuesday, when it has a debt repayment of 1.6 billion euros (£1.1 billion).

Negotiations have stumbled on what economic reforms Greece must make in return for the remaining 7.2 billion euros (£5.1 billion) in its international bailout programme.

Should it default on its debt, Greece could eventually have to leave the euro. That would probably plunge the country back into a deep and long recession and shake European and global markets.

European leaders have demanded finance ministers from eurozone countries reach an agreement tomorrow on the reforms Greece must make to unfreeze its bailout loans.

European Commission president Jean-Claude Juncker said: "There is a real chance to conclude an agreement."

He said tomorrow is "a crucial day not only for Greece but for the euro area as a whole", and added: "I'm quite optimistic but not overly optimistic."